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Thursday, January 31, 2013

Govt must fund higher education

Education was institutionalised to formalise the process of knowledge acquisition and research in man’s quest for understanding.

Earliest universities in the history of mankind, namely Al-Azhar, Bologna, Oxford, Palencia, Cambridge and University of Naples (the world’s first public university set up in 1224) have one thing in common: they were built by notable early world civilizations as institutions of research, discourse, learning, proliferation of knowledge and documentation.

This contrasts largely from the role of universities today as institutions of human capital accreditation, qualification, and most unfortunately, business and profits.

Ibnu Khaldun, father of historiography, sociology and economics, in his work “Prolegomenon” (Muqaddimah) argued that the government would only gain strength and sovereignty through its citizens.

This strength can only be sustained by wealth, which can only be acquired through human capital development (education), which in turn can only be achieved by justice and inclusiveness for all.

Aristotle, too, proposed that “education should be one and the same for all”. A system that discriminates, in our case, based on household economic ability, can and will lead to an unhealthy imbalance in the quality of the resulting labour force and society. These form the basis of our argument here.

In America, the individual funds his higher education while many European countries have public-funded institutions of higher learning. The latter is the best for Malaysia. Our societal and economic progression (or digression) does not depend on any one factor, but on the interaction of economic, social and political factors over a long period of time.

Let’s first look at some realities that we need to contend with to understand why the Malaysian government should fund higher education.

Reality 1: Society benefits from education

We can never truly measure the immense positive externalities derived from an educated society.

The benefits of university education and research have continuously helped advance the progress of mankind. In developing Malaysia, higher education is an impetus for establishing a civic-minded society, highly skilled manpower and competitive value proposition for capital and production.

Investing in education may be costly to society, but the consequences in failing to do so will be devastating.

Walter W McMahon (an economist at University of Illinois) outlined the “private non-market benefits” for degree-holders.

These include better personal health and improved cognitive development in their children. Alongside is the “social non-market benefits”, such as lower spending on prisons and greater political stability.Reality 2: ‘Neither here nor there’Malaysia is neither here nor there, and education opportunity is a major contributing factor.

Robert Reich, former US secretary of labour and professor at UC Berkeley, made a compelling argument that is very applicable to Malaysia.

To attract jobs and capital, nations and states face two choices: one is to build a low-tax but low-wage “warehouse economy” competing on price; the other is to compete on quality, by increasing taxes and regulation to invest in human capital for a highly productive workforce.

In Malaysia, wage growth caught up with productivity growth only up until the late 1990s.

Since 1996, we have been living in the “middle income trap”, stunted according to the World Bank’s definition of upper middle income – neither high nor low income. In fact, for the past 10 years real wage growth has been negative.

Having 77% of the Malaysian workforce with only SPM and lower qualification is a structural barrier which prevents us from crossing over to the higher income group.

The labour force is largely unskilled and unable to move up the value chain where higher salaries are paid.

Reality 3: Education vital to stay competitive

Another case for education is the need to compete for both FDI (foreign direct investments) and outputs.

On the FDI side, our factors of production, especially labour, need to be attractive enough. With a labour force that is neither highly skilled nor cheap, our value propositions dwarf next to the likes of Vietnam and Singapore.

As a result, technology and automation have replaced labour for lower-value processes, while R&D and invention have not caught up due to lack of expertise. Malaysia has been the only country in the region facing net outflow in FDI since 2007.

On the output side, our goal to move away from producing lower-value manufacturing and primary goods into higher-value services sector, too, has been held back by limited talent and capabilities. Lack of advanced education is one major factor causing this lack of competitiveness.

Reality 4: Efficiency versus Innovation

A study released by the Global Entrepreneurship Monitor (GEM) categorises Malaysia as an efficiency-driven economy rather than an innovation-driven economy.

We focus on improving existing processes, but we are not out there inventing new things where the big money is.

Focusing on the latter is extremely important now more than ever for Malaysia, because we can no longer offer very cheap labour, land and factories to produce mass generic products competitively.

The number of researchers in Malaysia for every one million population is only 365, well behind Japan’s 5,416 and South Korea’s 4,231.

We are in dire need of more trained professionals and innovators, and we could have harvested them from talents that did not pursue tertiary education due to the lack of opportunities.

Reality 5: Education is an investment

Like parents investing in their children’s future, the state must invest in the population for the future of the nation.

An educated society enjoys higher standards of living characterised by higher income, production of high-value goods and services, longer life expectancy, political stability, existence of civil liberties and openness to change and development.

While highly developed nations like Denmark and the Netherlands invest 11.2% and 10.8% respectively of GDP in education, we invested only 4.8% last year (the majority on infrastructure and emoluments).

To make matters worse, the education budget was slashed from RM50 billion to RM37 billion this year. To get an idea of how counter-productive this is for a developing Malaysia, even Afghanistan (7.4%), Vietnam (7.2%) and Timor Leste (12.3%) spent more.

Currently, about 80% of the bottom 40% income households are only-SPM qualified and below, while only 5% received higher education. The rest never made it to school at all.

The reason is crystal-clear: it is education that can lift households to a higher income bracket thus significantly reducing poverty and its consequences. If this group were to receive higher education, it is the state that ultimately benefits as social capital is returned from the household to the state in increased production and tax income.

Social justice is served; nobody is left discriminated or neglected from being given an opportunity to develop his or her own merits.

Reality 6: Positive net return-on-investment (ROI)

Take, as a example, a fresh graduate entering the workforce with a salary of RM2,500, and working for 30 years with a modest increment of 5% a year. Upon retiring at the age of 55, he would have paid back at least RM290,000 to the government in income taxes.

Even after discounting, payback in taxes is significantly beyond the investment in education.

Reality 7: Education correlates with wealth and income

Tertiary-educated individuals have an average of RM182,000 in wealth to their name, while SPM holders have only an average RM82,000 in net worth. Degree holders have at least 2.2 times the wealth of SPM leavers. But the tertiary education penetration rate for Malaysia stands at only 36.5%.

This is only measured at point of enrolment (not completion). Not only are we significantly behind the “very high human development” nations’ average of 75%, we are also behind “high human development” nations’ average of 50%.

In contrast, 86% of Americans, 84% of New Zealanders, 100% of Koreans, 99% of the British, 45% of Thais, and 38.4% of Turks are university-trained.

As a result, the bulk of our workforce is unable to position itself into higher-earning jobs. The bulk of our jobs involves the lower sections of the industry value chains.

How are we then to move our economy into higher GNI (gross national income) territory, and move the majority of our population into a higher income bracket?

The current practice of relying on one-off mega construction projects will not ensure Malaysia will move into a high-income status, and stay there for the long run.

Reality 8: Education will reduce income inequality

Malaysia ranks as the third most unequal nation in Asia, based on a GINI coefficient of 0.4621 (World Bank). Using only GINI – a simple measure of dispersion between the richest and poorest in an economy – we can already see that there are structural problems with the kind of growth that we have been enjoying.

A household that earns RM10,000 monthly and above is already considered the top 4% Malaysian households. Some 60% of the highest earning income households have at least one member that received tertiary-level education.

But 60% of the lowest-earning households have only SPM-holders as their most qualified household members. Only the top 20% income households in Malaysia have experienced substantial income growth.

For the remaining 80%, it has been moderate. The gap between the rich and poor has been consistently growing from 1970 until today. Only non-discriminatory access to education for the bottom 40% will arrest the growth of this gap.

For the US, the benefits of tertiary-level education are enjoyed mostly by the individual himself, thus the individual funds his higher education. The Scandinavians believe that the government should pay for higher education.

On the one hand, we see a privately funded education system in America, and growing inequality between the relatively richer and poorer households.

There is at least US$902 billion (NY Federal Reserve) in total outstanding student loan debt in the United States today. In contrast, government-funded higher education Scandinavia ranks as the most equal nation in the world. The apparent causal-effect relationship here is hard to dispel.

We expect free access to education to allow inter-generational mobility and narrow this inequality gap. If we let economic disability become a prohibitive factor for education, relatively poorer households will never be lifted out of the low-income bracket.One graduate for every Malaysian familyWe need an education system that is inclusive, does not neglect academically-struggling yet vocationally-advantaged pupils, matches industry requirements, yet streams students into disciplines where they will excel most.

Most importantly, the system must not give rise to a situation where students will find themselves handicapped at the point of entering the industry, because of a student loan on their shoulders, and then only to realise that they are not employable.

Malaysia has progressed in many aspects by making primary and secondary education free. Some 100% of Malaysians finish at least Primary 6 and 68% finish Form 5.

The current socio-economic condition in Malaysia now calls for completing Form 5 legally compulsory and providing free and accessible tertiary education for all.

I humbly urge the government, non-governmental organisations, policy-makers, and lobby groups to move towards providing free tuition fees for higher education at all our public universities.

Where public universities are unable to accommodate a surplus of qualified students, it is suggested that the same equivalent amount of tuition fee be provided for private universities in a staggered manner, so as to ensure education accessibility to all.

I also propose a target of producing one graduate in each of the 6.4 million Malaysian households to ensure inter-generational mobility; that is, for at least one child of a self-subsistent fisherman or low-salaried factory worker to uplift the entire family into a higher income bracket.

A graduate in each family will be the agent of change that will ensure his generation improves the family.

Education is way too important for us to risk any mismanagement, oversight and underfunding. The generations that go through a robustly managed quality education system, or lack of it, will ultimately decide Malaysia’s direction and the society that we will live in.

Only then can we assure that a high income Malaysia is sustainable, inclusive and is enjoyed by all layers of society – not just for the top 1%.

Let us reflect what Nelson Mandela said for a better Malaysia: “Education is the most powerful weapon you can use to change the world.”